Claire Wivell Plater

Ancillary or ‘add-on’ insurance, sold at the point of sale, is a new focus for ASIC in 2014, with all businesses selling general or life insurance, or offering credit as an ancillary offering, likely to be affected according to The Fold Legal (The Fold).

The Fold’s managing director, Claire Wivell Plater said ASIC has already spent considerable time looking at motor, consumer credit and travel insurance and it’s clear that they’re not liking a lot of what they’ve seen.

“ASIC has devoted two sessions to this issue at its 2014 Annual Forum, bringing the CEO of the UK Financial Conduct Authority, Martin Wheatley, over to Australia to speak about the UK experience,” she said. “Mr Wheatley let slip a few tips about how they do it in the UK; they follow the money and look at areas such as business model, speed of growth, comparative gross margins, customer base and culture.”

While not all add-on insurance is problematic, potential remedies are under consideration in the UK and Australia. “Many insurance products sold at the point of sale offer a convenient means of purchasing coverage which in some cases is not readily available through conventional channels,” Ms Wivell Plater said. “The underpinning philosophy seems to be that the more obstacles that are put in the way of people’s buying decisions, the better the quality of the decision and the less opportunity for mis-selling and overselling. Regulators are now using behavioural economics to analyse financial services selling practices – with alarming potential consequences for distributors of ancillary insurance and credit products.”

Insurance advisers should be reviewing the following processes within their business:

• Product design- are products giving value for money?
• Sales processes and collateral – are customers fully aware of what they are buying?
• Remuneration structures – minimise incentives to oversell or missell.
• Sales practices in the field – just because you haven’t asked your staff to, doesn’t mean they aren’t!

“If a sales process includes pre-ticked boxes, bundling of costs into another product, misrepresenting the need for cover, opaque selling practices or remuneration practices that encourage aggressive sales – that is, commissions and volume bonuses – advisers could be singled out for special attention,” Ms Wivell Plater said.

Key indicators of trouble include:

• Narrow coverage, e.g. the policy only insures extreme events that are unlikely to occur
• Coverage of existing rights, e.g. most of the rights to refund, repair or replace provided by the warranty are available under the existing consumer guarantees
• Exclusion of common loss circumstances,  e.g. loan protection insurance which excludes claims arising from the two most common causes of inability to work: bad backs and heart attacks
• Low claims ratios
• High denial rates

Ms Wivell Plater warned that the focus will not just be on existing businesses. “It’s also likely that the licensing division will look at these issues when considering licensing applications, so a review of ‘add-on’ or ‘point of sale’ products must be a priority in order to stay out of the regulators’ sights.”

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